The objective of industrial complex analysis is to estimate the cost
advantages of various combinations of industrial activities for a region
in order to identify its most favorable development projects. this type of
analysis has been carried out for Puerto Rico in which petroleum refining,
petrochemical, fertilizer and synthetic fiber production are considered.

The method of analysis is an extension of input-output or interindustry
analysis called activity analysis. In activity analysis a process may produce
more than one output and there may be more than one process that produces
a given output. In input-output or interindustry analysis there is a one-to-one
correspondence between processes and products. In activity analysis, because
there may be more than one technique for producing a good, there can be
tradeoffs, such as between labor and capital, in producing a good.

In the industrial complex analysis for Puerto Rico 73 activities or processes
involving 37 different inputs or outputs are considered. These include the
production of four different synthetic fibers (Dacron, Dynel, Orlon and Nylon)
each in three different forms (polymer, staple and filament).

The analysis for Puerto Rico is limited to four regions:

Venezuela, as source of crude petroleum

Puerto Rico

the New York-Philadelphia-Baltimore region, as a market area

the Gulf Coast region, as a market and competitive production region

The South Atlantic region was left out of the analysis because, due to
economies of scale, the shipping rates to the New York-Philadelphia-Baltimore
region are cheaper than to the South Atlantic region even though the South
Atlantic region is physically closer to Puerto Rico.

The raw material inputs were assumed to be directly proportional to the
level of operation of a process. This is dictated by the chemistry of the
process. The analysis did considered possible economies of scale in the capital equipment
requirements and also the labor input requirements. These inputs were
assumed to be of the forms:

C = C0Qaand
L = L0Qb

where a and b are positive exponents of less than 1.0 in value.

The focus of the analysis is cost comparison, which seems dramatically
different from the focus of interindustry analysis on changes in output, but
the mathematics is very closely related.

Conclusions of the Analysis:

Petrochemical production involves significant cost disadvantages for
Puerto Rico because of transportation and the need for skilled labor. This
also applies to a less degree for refinery applications.

There are significant cost advantages for Puerto Rico in fertilizer
production because of the significant domestic demand for fertilizers

There are significant cost advantages for Puerto Rico in synthetic
fiber production because of the availability of cheap domestic labor for
textile operations.

Staple fiber production involved a greater cost advantage for Puerto
Rico than continuous filament fiber because of the higher labor cost for
filament production

The analysis was extended by considering three different levels of scale
to see how the relative cost of Puerto Rico activities is affected by
economies of scale.